Rates & Bonds · Bond math
Duration & DV01
How much money you make or lose per basis point: the core number on every rates desk.
Step 1 of 4 · Overview15 min read ·
Modified duration ≈ % price change for a 1% (100bp) yield change. DV01 = dollar value of a 1 basis point (0.01%) move.
# DV01 ≈ modified duration × price × notional factor × 0.0001
mod_dur = 8.0
market_value = 10_000_000
dv01 = mod_dur * market_value * 0.0001 # $8,000 per bp
# yields +10bp → P&L ≈ -10 × 8,000 = -$80,000 (long position)| Position | Yields ↑ 1bp | Yields ↓ 1bp |
|---|---|---|
| Long bond (DV01 $8k) | −$8,000 | +$8,000 |
| Short bond / pay fixed swap | + | − |
Key idea
Interview tip (Citadel prep): always state direction first ("long duration loses when yields rise"), then size with DV01 × bp move. Hedge ratio between two bonds = DV01₁ / DV01₂.Next: Practice